Billionaire Peter Thiel, co-founder of Palantir Technologies and current chairman, has made notable moves in the investment sphere through his hedge fund, Thiel Macro. In the fourth quarter, the fund sold its holdings in tech giants Apple and Microsoft, despite analysts believing these stocks remain undervalued. This decision is particularly intriguing as it contrasts with the broader optimism expressed by Wall Street regarding both companies.
Recent analyses indicate that among 52 analysts, Apple’s median target price stands at $303 per share, suggesting an 11% upside from its current trading level of $273. Microsoft, with a median target price of $600 among 60 analysts, hints at a striking 49% upside from its present price of $402. Given the recent trading activity, investors are encouraged to reassess their positions in both tech titans before mirroring Thiel’s decisions.
Apple’s recent financial results have been largely positive, with revenue rising 16% year-over-year to $144 billion, driven by strong sales growth in both the iPhone and services sectors. Notably, demand for the iPhone 17 surged in Greater China, where sales increased by 38%, marking the highest growth in four years. The company also reported a GAAP net income jump of 18%, reaching $2.84 per diluted share.
The investment thesis for Apple hinges on its dominance in consumer electronics, particularly its leadership in the smartphone market. With an impressive 2.5 billion active devices globally, Apple has significant potential to expand its high-margin services business, which includes advertising, payments, cloud storage, and subscriptions. The company is also strategically positioned to leverage artificial intelligence (AI) at the consumer level.
While integrated generative AI features, dubbed “Apple Intelligence,” did not significantly drive iPhone sales last quarter, Apple plans to enhance its offerings using Alphabet‘s Gemini models. This includes an anticipated update for the personal assistant Siri, slated for release in 2026. The fundamentals of Apple remain robust, particularly in the iPhone segment and the Greater China market, yet questions linger regarding Thiel’s exit from the stock.
One possible reason for Thiel’s decision could be the anticipated contraction of margins on Apple products, notably due to rising memory chip prices. Additionally, with the stock currently trading at 34 times earnings, some may view this as an expensive valuation given earnings forecasts project only an 11% annual increase over the next three years. These factors align with Thiel’s analysis, suggesting caution regarding Apple’s stock.
On the other hand, Microsoft also posted strong financial results for its December-ended fiscal quarter, with revenue climbing by 17% to $81 billion. The company reported a non-GAAP net income rise of 24% to $4.14 per diluted share. CFO Amy Hood noted that the company exceeded expectations across all key metrics, including revenue, operating income, and earnings per share.
Microsoft’s investment thesis is anchored in its robust enterprise software and cloud computing sectors. The company’s efforts to integrate AI capabilities across its software products—such as low-code development and office productivity—are setting the stage for accelerated sales growth. In the fourth quarter, paid Microsoft 365 Copilot seats surged by 160%, and daily active users increased tenfold, reflecting strong adoption rates.
Microsoft Azure has also been expanding its market share in cloud infrastructure and platform services, with demand for compute capacity consistently outpacing supply. According to a recent survey from Morgan Stanley, Microsoft is viewed as the company most likely to enhance its share in cloud computing and generative AI over the next three years.
However, Thiel’s exit from Microsoft raises concerns among investors, particularly in light of fears that AI-related tools could disrupt the software industry. Microsoft is committing substantial capital to AI initiatives, and despite management emphasizing the adoption of its Copilot feature and strong cloud service demand, some investors remain skeptical about the potential returns on these investments.
Nevertheless, a broader perspective may reveal that AI is poised to be one of the most transformative technologies in the coming decades, positioning Microsoft as a key beneficiary due to its integral role in enterprise software and cloud services. Currently, Microsoft’s stock trades at 26 times earnings, a valuation deemed reasonable for a company projected to grow its earnings by 15% annually through fiscal 2027, which ends in June. Rather than divesting, investors might find it prudent to consider establishing a small position in Microsoft.
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